Guest Post: Plutonocrits

Charles de Trenck has written a very interesting article on so-called 'Plutonomies' and how they affect the global economy. We offer this article to our readers as a free download in pdf format below.

The term 'Plutonomy' was originally coined by Citigroup analyst Ajay Kapur, who argued that in many countries, an ever larger part of economic activity was due to the the richest segments of society, as wealth disparities have increased a great deal in recent decades.

Countries with especially large Gini coefficients (i.e., an especially large gap between rich and poor) were deemed to represent such 'Plutonomies' by Kapur.

We would briefly comment here that one of the main reasons why the gap between rich and poor has widened so much is the vast amount of monetary inflation that has taken place in recent decades. As we have hopefully convincingly demonstrated in a previous essay on growing wealth and income inequality in the US, it is not inequality as such that is the problem.

The problem is that while the rich have gained from monetary inflation, the middle class and the poor have at the same time lost out. Inflationary policy is in effect a reverse distribution of wealth from the poor to the rich. This problem cannot be satisfactorily solved by moving toward more socialism. What is required is a return sound money and the abolition of central banking and fractional reserve banking. The world's banking cartels must be replaced with a free banking system.

There is no contradiction between advocating both free banking and a ban on the lending out of demand deposits. One merely has to consider that the latter practice is essentially fraudulent (even though it is currently legal) and hence violates property rights. Irregular deposit contracts are akin to warehousing contracts. It is not legitimate to use things one stores on the behalf of customers with the promise that they can be withdrawn again at any time for one's own business purposes. Moreover, it is precisely because of this practice that we experience the credit expansions that are at the root of boom-bust cycles. These business cycles are obviously detrimental to society as a whole. Banks would of course be perfectly free to lend out savings deposits, which are mutuum contracts. For more details on this, we refer readers to our previous series of articles on fractional reserve banking (parts one, two and three).

Charles takes a slightly different tack in his article, which is subtitled “a plea for social consciousness among certain segments of the ruling class, and understanding some of the effects of off scale Gini coefficients.”

He differentiates between what he calls a 'plutonocrit' – someone who uses the political system to gain economic advantage, i.e., increases his income and wealth by political means, as opposed to the entrepreneur, who increases his income by economic means, i.e., voluntary exchanges in the marketplace.

Pultocracy is a very old term not invented by some analyst at a bank. The only problem with our modern plotocracy is that their policies have gone on for so long without any moderation that they have started a cycle of demand destruction. If it were not for the Fed bailing everyone and everything out there would be a concensus for change from almost everyone moderately rich down to the poor alike. So in that regard the fed is merely forestalling the inevitible hoping that the politicans can work a political solution before the clock runs out. Same thing the bankers always do ala Jacues Necker. Historically that has always been a fools errand and the clock has always run out which often worsens the severity of the eventual collapse but here we are. The desire for Empire inevitably results in rivers of blood once the emperor starts to canabilize the host population to maintain the Empire but a whole segment of men refuse to abandon the impulse no matter the enormity of the historical and other evidence. It gets at the root of the question of whether evil exists a priori and to that I do not have an answer.

Monetary inflation does act like a wealth transfer from the poor to the rich.

However, inequality IS the problem. If it wasn't then you shouldn't bother to complain about the wealth transfer from the poor to the rich because it wouldn't matter no matter how extreme it got, or how unfair and corrupt it was.

Plus there is the issue that with high wealth inequality that the rich can simply buy the political influence to make the inequality permanent. It's a lot harder to do in a society with more equality.

".. the abolition of central banking and fractional reserve banking. The world's banking cartels must be replaced with a free banking system."

Yummy, how do you propose to do that mate?

Ask your local banking puppet (politician) to write laws to do it for you??

Here's the turds in the road you need to skip around, before i propose the simplist of solutions.

1. No public representative has ever represented the public.

2. No public representative can single-handedly pass law

3. No Law has prevented any bad stuff ,even if you could pass it through

4. No form of collectivism has worked or will work

My suggestion:

1. Don't put your money in a bank, be your own bank

2. Don't put faith in any person to represent you, represent yourself

3. Don't ask for rules and foist them on others, mind your business and apply your own judgement to the way you conduct your own business

You see everything you want to change you can do yourself, like tomorrow, soon as you begin. You don't need to wait on anyone, pray for institutional salvation to arrive, sit at the gate hoping the postman delivers you a letter inviting you to your own Nirvana

Store your own cash, be your own low risk un-leveraged bank, invest it in your mates electrical business, start your own, do what the fuck you want, don't wait for others to do it for you

The problem with the Western world is we have externalised all our wants on institutions to deliver it for us. We're lazy (dependent?) with bells on. Any wish we have we immediately pass the buck to Govt or some other useless organisation to do the dirty work for us. it ain't happening is it?

Do it yourself, immediate return on investment, no cues, no wishful thinking 316 dull Mars bar chumping civil servants will work the next 4 months just to deliver you your perfect banking system

If you're hoping your wishes and dreams arrive by some stupendously insane plan others will deliver it you deserve exactly what you get when dealing with Govt, mugged ...because you are a mug for not being an adult and sorting yourself out. Here's your options again:

1). Sit and whine for another 20 years hoping a free banking system arrives replete with 240 rules on leverage, over-leverage, bankers bonuses, promises not to lose your money etc etc

2). Take your money out of the bank tomorrow and look after it to your own high standards

One is realistic, two will not arrive by public transport anytime during your lifespan

Sure, socialism as it has been practiced may not be the answer but there are many different forms of political systems that can be referred to as socialist. And I am not about to abandon a plan that looks and sounds good just because it might be labeled socialist. As a matter of fact many of the socialist systems of the past might better be labeled oligarchies due to the special privileges granted to the government officials running those systems. Although 'oligarchy' might not be appropriate since so many government officials tend to benefit from their positions in those so-called socialist regimes -- perhaps we need a new term here. Well, the Latin word for government is 'regimen' so I'll call the political form where the government and some of its enforcement and intelligence employees becomes unwieldy and oppressive to the people it is supposed to support, a 'regimenarchy.' So, wouldn't it at least be possible to create a socialist system with all its nice safety nets and useful and pleasant services that is not a regimenarchy?

first there is no society, we are individuals first and last and we are designed, like nature not to want all to be the same (if an asteroid falls it helps survival if we have 2,000 different escape strategies rather than 1, because if 1 is wrong, we all get wiped out)

so you cannot apply one rule or ideal to the whole of society, it's a square peg in a round hole, we're not designed to be identical, socialism tries to herd cats

another problem is it says I can take from Peter to help Paul. It's socialised theft from Peter and makes Paul a dependent fat inept bore (think Barney Frank)

another problem is Marx wanted to replace the productive rich with a poor political class and raise them above the rich based on idealism that the poor had a 'right' to also govern. Unfortunately replacing people who know how to be productive with people who have no fucking clue impoverishes Peter and Paul

Some of the gap is an illusion. People that live payday to payday or are on the state dole do not accumulate wealth while some one with a million currency units of wealth because of 100% inflation will have 2 miliions units giving the image that he got richer while the bottom remained the bottom. The effect is the same whether the inflation is 5, 10, 20, or 30% per year to reach 100% total. Sometimes the rich get richer in real currency units, but usually the poor just are mired in poverty. My personal portfolio took a 50% hit in 2008-9 and is back to about the same dollar value but i am not sure that i have not lost a large % of real value. Inflation figures are science accounting fiction. No govt. figures can be given much credence at all on any published data.

What, so we must ask, is central banking good for when it is not even able to guarantee a stable price level?

Why keep a quasi-dictatorial creature within the government body that operates largely outside of public control? Why hold on to an institution that more often than not has failed to provide full employment and price level stability? By these criteria the Fed has indeed been a failure. What then, we must ask is the true mission of central banking as one cannot calibrate accurately the effects of monetary policy on the real economy and price level? The answer is provided by the historical origin of central banking. As Rothbard and other authors such as more recently Lawrence White have shown, central banking grew out from the cooperation between the state and the big players of the banking sector. The deal that was struck said that the big banks will finance government and that the government won’t let the big banks go bankrupt. For that purpose a lender of the last resort was installed in the form of a central bank which would obtain the privilege by the government to produce unlimited amounts of fiduciary money.

Historically the scope of discretion was restricted by the gold standard at first, yet over time the various constraints have been removed step by step beginning with World War I. With the so-called Smithsonian agreement of 1971 the last anchor for the US dollar fell. At the day when President Nixon fully abandoned what was still left of the gold standard, the starting gun was fired for the escalation of the financial sector to grow into its current gargantuan proportions. In tandem with the expansion of the financial sector, government grew its public debt into its current colossal dimensions.

While central banks are effective as lender of the last resort and thereby to safeguard the big players of the financial system from going bankrupt, they are not only incapable of promoting economic growth, employment and price level stability, they are in fact the major perpetrators of the business cycle. Always under pressure to set the interest rate as low as possible, central banks provoke artificial booms which inevitably must result in a bust. The big players in the financial market can profit on the way up without fear about the downturn as they can rely on the central bank to bail them out.

In an academic paper Bernanke (2001) and his co-author argued explicitly that central bankers should not try to prick asset bubbles but stand ready to bail out banks and financial institutions when the bubble bursts. In his speech as a Governor of the US central bank on “Monetary Policy and the Stock Market”, Bernanke declared in 2003: “The ultimate objective of monetary policymakers is to promote the health of the U.S. economy by pursuing our mandated goals of price stability and maximum sustainable output and employment. However … monetary policy actions have their most direct and immediate effects on the broader financial markets, including the stock market, government and corporate bond markets, mortgage markets, markets for consumer credit, foreign exchange markets, and many others.” The message was well understood. The big players in the financial market could rest assured that their central bank would bail them out when a new episode of the lending spree began - the housing bubble. Operating as bailout machinery for the financial system, the US central bank has thoroughly infected the monetary system with moral hazard.

Income inequality may not be necessarily bad, from a free market standpoint. However, it is suspiciously well-correlated with political inequality. It's no accident that unfree economies and high income inequality go together.

This article, and virtually all of the comments above, are gross understatements and/or misrepresentations of how extremely bad things are! For sure, the REAL system is PLUTOCRACY. For sure, therefore, the economy is becoming a plutonomy, where the wealthy few overwhelmingly have the demand power, that drives all of the other economic activities, while the masses of poorer people provide insignificant contributions to the demand power, and therefore, supply ignores their needs, but rather turns to those with the power to pay.

In Roman Mythology, Pluto was the god of the dead and the ruler of the underworld That is a totally appropriate way to understand that money is based on murder, and that plutocrats were the best organized gangs of criminals, that were able to control governments. Indeed, that is HOW and WHY "governments" evolved in the first place! Plutocracy is government by the wealthy. However, that was always fundamentally based on robbery, which evolved to become fraud. Thus, the plutocratic system today depends on a tiny elite which has been given the power to make money out of nothing, as a form of legalized counterfeiting, backed by governments.

... 'plutonocrit' ... Hah! It is sublime hypocrisy to believe that economic activities can ever take place in a purely voluntary way, since everything takes place inside of the overall context of "involuntary contracts!" To believe that natural resources are available to transform due to voluntary contracts is to deliberately ignore the history of war! More importantly, this article, and almost all the comments upon it, ignore that postmodernizing science and technologies are ORDERS OF MAGNITUDE BIGGER, than anything before in human history! That is the primary reason why I find this article, and the most of the comments made upon it, gross understatements of how BAD IT IS!!!

The plutonomy is based on runaway numerical abstractions, that leave people behind. Gradually, science and technology create computer controlled machines that are superior to human beings. For a while, those who own the machines gain all the advantage from that. However, the process is on a runaway ramp, to leave behind more and more people, faster and faster.

The deindustrialization of North America was due to third world peasants being able to be exploited as a wave of workers, however, it will quite possibly not be long until third world peasants will no longer be able to compete with computer controlled machines.

Plutocracy evolved on the basis of militarism, which also drove the patriarchal system, etc.. All of the prejudices that were behind slavery, sexism, and ageism, are being amplified through the numerical abstractions of the monetary systems, that had their roots in military history. However, those are having wave after wave of science and technology transcend them, and leave more and more different kinds of human beings behind in the dust.

As the ownership of the productive computer-machines is more and more concentrated, the benefits of that go to those who own those machines, everything regarding how people tended to be jerks, who are greedy and stupid, and crazy in various ways, is being astronomically amplified in size by the progress in science and technology. The most extreme of those things is the creation of weapons of mass destruction. We are REALLY inside of runaway systems of global electronic fiat money frauds, backed up by atomic bombs, and other weapons of mass destruction, which are MANY ORDERS OF MAGNITUDE GREATER THAN ANYTHING BEFORE IN HUMAN HISTORY.

Thus, the runaway plutocracy, and its creation of a plutonomy, that cares only about the plutocrats, is becoming astronomically amplified INSANITY. We have not seen anything yet, regarding where that could go! Furthermore, there is barely the slightest sign that the insanity of such a "scientific dictatorship," that the plutocracy is creating for the benefit of the plutocrats, is going to allow any saner transformations which faces the MAGNITUDES OF WHAT IS HAPPENING!

There is no doubt that this kind of article is superficially correct. However, it is still light years away from a deeper understanding of what it is talking about! Economics got left behind by the progress in sciences such as physics and biology, because economics was based on the triumphs of frauds, backed by force, that specialized in lying about themselves. Therefore, the grand canyon gaps between progress in things like physics and biology, etc., and the potential sciences of human ecology and political economy, are growing at exponential rates.

More and more, we have urban barbarians who do not understand the technologies that they depend upon, and more and more, they are being controlled by the runaway triumphant lies, in the form of the propaganda pumped out by the scientific dictatorship of the plutocracy. That is picking up more and more speed, as the plutonomy takes over from the old fashioned economy. More and more, the vast majority of people do not matter, but only those who own the machines matter, and their desires control the benefits from operating those machines.

That is only going to get exponentially worse in the foreseeable future, since practically zero understanding of real human ecology, as applied through real politics, is on the horizon as being recognized and understood by the majority of people. Indeed, as demonstrated by the recent decisions of the Nobel committee, the leading edges of our society have also become so blinded and subservient to the ruling classes' triumphant bullshit, that, by and large, even those with way more than average knowledge about science and technological processes are also almost totally blinded by beliefs in bullshit views of social realities.

THERE IS NO DOUBT THAT THE PLUTOCRACY AND THE PLUTONOMY ARE REAL RUNAWAYS! HOWEVER, FOR THOSE WITH A MACABRE SENSE OF HUMOUR, IT IS LAUGHABLE HOW UTTERLY HYPOCRITICAL IS THE COMPREHENSION OF WHAT IS "plutonocritical."

In the U.S., the anemic pace of growth pervades throughout the economy. Initial jobless claims surged 46k last week, erasing the entire drop in the week prior. In addition, ninety three S&P 500 companies reporting earnings so far for the third quarter have shown that profits are down 0.5%. The sad facts are that GDP and earnings growth in America is just about flat. Therefore, the Fed has already placed interest rates at zero percent for the last four years and has caused M2 money supply to be up 7% YOY.

The strategy of governments and central banks is clear; lower interest rates and pump money into the system in order to re-inflate asset prices and releverage the economy. Although they have been very successful at debasing their currencies, they have missed a very key point. That is, an increase in money supply growth and inflation does not equate to an improving economy. And when taken to the extreme levels we see today, it instead leads to a protracted period of persistently weakening economic growth.

Money supply growth should never eclipse labor force + productivity growth. When inflation rises faster than GDP, malinvestments are created and asset bubbles form. That is especially true today as we see a tremendously-dangerous bubble being created in all the bond markets of the developed world. But what is also true is that government debt that is being systematically monetized by central banks is slowly destroying any confidence left in fiat currencies. As more and more credibility is lost in paper money, GDP growth will continue to decrease in real terms.

As long as governments continue to produce massive annual deficits that are purchased by their central banks, the global economy will continue to stagnate and inflation will increase. What is also true is that equity markets tend to rise over time in nominal terms because excess money creation lowers the value of currencies and raises stock prices. However, the increase in equity values seldom keeps pace with the rate of inflation. To accomplish the goal of achieving a real rate of return on investments after taxes and inflation are considered, history proves that can only be supplied by owning hard assets.